What is Company Car and Fuel Benefit?
If a Limited Company is providing a company car or fuel benefit for Directors or employees during the tax year 23/24 this is a Benefit In Kind and is taxable on the employee or Director who uses the vehicle.
Does it matter if the company owns the car outright or leases the car from a third party?
Ownership or lease of a company vehicle by the company is not considered when working out this benefit in kind. The point is a Director or employee is provided with a vehicle that the company is paying for.
How is the taxable benefit in kind worked out for the company car?
Looking just at the car benefit and not the fuel benefit as they are 2 different benefits. For working out the benefit-in-kind cash value of the car there are 3 steps to consider:
What was the list price when the car was first registered when it was brand new?. This is not the amount the company paid for the car by purchase or lease but the list price of the car when it was very first registered as roadworthy.
The second step is to calculate the list price x relevant percentage as provided by HMRC. HMRC determine percentages to be used based on the CO2 emissions of the car to establish the CO2 emissions - this is the carbon dioxide emissions of the car per kilometre of travel.
For electric cars, it is how far you can drive the car before you need to recharge it.
The lower the emissions, the lower the taxable benefit will be.
Step three is to adjust for any portion of the year when the car was not available to the Director or employee. This may be because the Director or employee was provided with the car by the company mid-way through the year. If the car is simply not available because it was in the garage for repairs, to count for a period of not being available the car would need to be unavailable for a continuous period of 30 days or more.
What if the Director or employee makes a capital contribution towards the Car?
Any capital contribution made can be deducted from the calculated list price, up to a maximum of £5000 (in 23/24). So, if a Director contributes £4000 towards a company car the full £4000 will be deducted. However, if the Director contributed £6000 towards the capital cost of the car, the deduction would be capped at £5000 (23/24) so there is little benefit to contributing any more than £5000 towards the cost of a company car.
Example of working out the taxable benefit in kind of having a company car (2023?2024):
List price when car brand new as per car dealer | £20000.00 | |
|---|---|---|
Director contributed £4000 towards the car | -£4000.00 | |
Revised list price | £16000.00 |
This is a petrol car with 51 – 54g/km CO2 emissions and HMRC percentage given to this is £15% (2023/2024)
The car was available to the Director for a full financial year
Cash value of the benefit in kind is £16000 x 15% = £2400
The £2400 is a taxable benefit which will need to be added to the Directors taxable income.
What if the company is also paying for fuel for the car?
If the business is only paying for business fuel and the Director or employee is paying in full for their private fuel = no benefit in kind.
If the business is paying for private fuel the cash value of the benefit in kind for the fuel (2023/2024) is £27800 x the CO2 percentage mentioned before. This is based on a petrol car.
There is no deduction of any fuel benefit if the Director or employee pays a contribution towards private fuel. It is an all or nothing situation for working out cash value of fuel benefit in kind. Either all private fuel is paid for by Director or employee, any partial contribution will not go towards a deduction so if you are looking to reduce the taxable benefit on the car it is better to make a capital contribution towards the car itself than a regular partial contribution towards fuel.
What if the car is Diesel or Electric?
The above example is looking at a petrol car, the calculations for a diesel or electric car are different.
Do you need extra help with this?
If you are a Director of your own business and you are thinking about having a company car or providing a company car to employees, you can reach out to us and we will be happy to give more guidance on the different fuels and the other CO2 emission percentages per CO2 emission category as released by HMRC.